2017 Budget Highlights and Analysis

Transcription

1 2017 Budget Highlights and Analysis

2 Key themes of the Budget 2017 Grow the Automotive sector Export and Prosper Recognition of Islamic finance Nairobi International Finance Centre Local Manufacturing and Assembling Lower corporate tax rates in strategic areas Invest in Security and Invite investment in Tourism and Hospitality Heavy tax on gambling and hard liquor Strengthen Healthcare by inviting FDI

3 BUDGET TAX HIGHLIGHTS Summary of direction Unpredictable tax regime Low tax payer base Weak legislation and inefficient tax administration Re-Alignment to Industry focus Drive to expand the taxpayer base Leveraging technology and strenghthened legislation Policy moves to strengthen exports and country s flagship industry s earnings Tax amnesty implementation guidelines yet to be clear I-Tax has eliminated manual interventions in return submission and tax payment process which has reduced business time on routine tax compliance The unified tax law for tax administration, compliance, collection & recovery for all tax laws in Kenya will boost the doing business convenience in Kenya Rehauled Income Tax Act and VAT Regulations expected in 2017

4 Income and Asset Disclosure Scheme Tax Amnesty Implementation guidelines not clear: KRA has been directed to issue clear guidelines and clarify circumstances under which amnesty can be granted KRA needs to clarify the difference between Income Earned outside Kenya Vis-à-vis Income Received outside Kenya in their guidelines to avoid misinterpretations by taxpayers Finance Bill 2017 has extended the timelines for submission of Amnesty returns to 30 June 2018 KRA needs to clarify whether the repatriated funds needs to be invested in Tax Amnesty Bonds or Defined Deposit plans with Banks with a lock in period Clarify timelines for repatriation of funds if the funds are locked up in immovable properties outside Kenya Clarify what are the allowed application of repatriated funds in Kenya

5 Tax Reforms Big Push to the Automotive sector w.e.f. 1 January 2018 Corporate tax 15%: Companies engaged in local assembling of motor vehicles will be subject to reduced corporate tax rate at 15% in the first five years of commencement of operations Skills and Technology Transfer Generate FDI: Local assembly in Kenya by Volkswagen, Peugeot, Ashok Leyland, Toyota, Foton Boost employment: Automotive sector is one of the largest employers globally. Local assembly plants will boost local employment levels

6 Tax Reforms Big Push to the Automotive sector w.e.f. 3 April 2017 Exemption from VAT: Specially designed locally assembled motor vehicles for transportation of tourists purchased by tour operators upon recommendation by authority responsible for tourism promotion Conditions to be met: Vehicle registered and operated by license holders Used exclusively for transportation of tourists Vehicle has the provision for camping, rescue, first aid equipment, luggage compartment, communication fittings

7 Tax Reforms Export to prosper Special Economic Zones (SEZs) w.e.f. 1 January 2018 Exemption from dividend tax in respect of dividends paid to Non-residents by SEZ enterprises, developers and operators Investment deduction of 100% of capital expenditure incurred for construction of building and/or purchase and installation of machinery Preferential witholding tax rates on payment to nonresidents Management and professional fees 5% Royalty 5% Interest 5% Exemption from Export duty and IDF for goods exported to and imported by SEZ enterprises Related party transactions with resident persons has to be at arms length

8 Tax Reforms Buy Kenya Build Kenya Promote local manufacturing w.e.f. 3 April 2017 VAT exempt on LPG: Supply of LPG has been exempted from VAT. This would push the cost up in short term to medium term. However, the Finance Bill 2017 has exempted from VAT, inputs used for manufacture of LPG cylinders by licensed manufacturers. This is meant to push down the cost in long term, promote investment in local manufacturing and safeguard the local manufacturing set ups against cheaper imports Refund of Excise duty paid on purchase of Illuminating Kerosene which is a critical raw material in manufacture of Paints and Resins. In order to avail refund, the manufacturers are requires to register as per the provisions of Excise Duty Act This move will have a positive impact on the Real estate and Construction sector VAT exempt on inputs purchased for manufacture of pesticides. This will have a positive impact on Agro and Horticulture sector and allow local manufacturers a fair playing ground

9 Tax Reforms - Handling food inflation VAT zero-rated on maize (corn) flour and ordinary bread: This will allow manufacturers to claim VAT on inputs from KRA and pass on the cost benefit to consumers Duty free import of white maize for the next four months w.e.f. 3 April 2017 Excise Duty Rates will be Inflation Adjusted from July 2017 which will push cost of excisable goods up

10 Tax Reforms VAT Rationalization w.e.f. 3 April 2017 VAT exempt on medical equipments and apparatus: Specialty hospitals with 50 Bed + capacity can avail this benefit upon approval by CS for Health VAT exempt on aircraft spare parts imported by aircraft operators and those engaged in aircraft maintenance services after recommendation from authority responsible for civil aviation VAT zero-rated for medicaments containing penicillin or derivatives thereof, with penicillanic acid structure or streptomycin or their derivatives

11 Tax Reforms Change in Individuals Tax Rates w.e.f. 1 January 2018 Tax bands expanded by 10% for second year in row to compensate for inflation to low income earners Exemption of tax on bonus, overtime allowance and retirement benefits for low income employees to continue: This benefit will be available to employees whose taxable employment income before bonus and overtime allowance does not exceed the lowest tax band (i.e. Kshs 12,298)

12 w.e.f. 3 April 2017 Tax Reforms Witholding VAT Provisions of Witholding VAT were codified in 2016 by insertion new Section in the Tax Procedure Act A person appointed as Witholding VAT agent is required to withhold 6% of taxable value on purchasing taxable supplies at the time of payment of supplies and remit the same to Commissioner Cash strapped: Suppliers earning low margin on their products and supplying goods to customers, who are appointed as Witholding VAT agents, have felt severely cash strapped due to 6% of their sales value being withheld and resulting in their inability to rotate swiftly their working capital. Further, due to low credit expansion by Banks in 2016, many of these suppliers have been unable to enhance their working capital facilities Finance Bill 2017 takes cognizance of this situation and provides that if due to nature of business of the supplier and due to application of Witholding VAT provisions, a supplier can sufficiently demonstrate that he is going to be in a continuous credit position for a period of minimum of 2 years, then the Commissioner can exempt such supplier from applicability of such provision

13 Tax Reforms Witholding VAT Example of Trader with 4 % margin

14 Tax Reforms Discouragement of rise in Betting, Gaming and Lottery culture in Kenya w.e.f. 1 January 2018 The global gambling industry profits for the year 2016 were estimated at $ 385 billion with online gaming accounting for 11% of the profits Sportpesa which was launched in Kenya in 2013 boasts over one million subscribers. The other companies in the Kenyan market includes Chezafutaa, Betway, Betin, Elitebet, Betyetu, Justbet, Easybet, Lucky ToYou and KenyaSportsBet Importation of slot machines in Africa has increased due to their low costs e.g. in Kenya, one can purchase a slot machine for as little as 100 Euros directly from the manufacturers

15 KRA powers expanded for Search and Seizure w.e.f. 3 April 2017 Tax Procedures Act 2015 has been amended to insert new provisions that has empowers KRA authorised officers to enter and search any premises and seize, collect and detain evidence and produce such evidences in any proceedings before a court of Law or Tax appeals Tribunal This change has gathered widespread attention and concern and it would be important for KRA to issue guidelines on rules within which such new provisions would be operated to avoid any abuse

16 Disclaimer Information provided here is of general nature and is not intended to address the circumstances of any particular individual or entity. The Information compiled in this document has been drawn and interpreted from the Budget Statement by Cabinet Secretary for National Treasury on 30 March 2017, Finance Bill 2017, Economic Indicators issued by Kenya National Bureau of Statistics, Central Bank of Kenya website, UCTAD Knowledge resource website, East Africa Community Customs Resources. A misstatement or omission of any fact or a change or amendment in any of the facts and assumptions we have relied upon may require a modification of all or a part of this document. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date of it is received or that it will continue to be accurate in future. No one should action such information without appropriate professional advice and after a thorough examination of the particular situation

17 Contacts FCA. Simant Prakash International Contact Partner CPA. Jitendra Swaly Senior Partner, Kenya CPA. Gurudas Anvekar Senior Partner, Tanzania CA. Dipak Chatterjee Senior Partner, India CA. Vijay Sastry Director, Canada Kamal Iyaroo Director, Mauritius CA. Imran Juma Director, Kenya Service Inquiries: Kenya Tanzania Mauritius Canada India 2017Five Elements Advisory, all rights reserved